Carl Emmerson

The IFS Green Budget 2020, in association with Citi and with funding from the Nuffield Foundation, analyses the huge economic trauma since the March Budget and the much heightened uncertainty over the path of the economy in coming years. The findings from chapters covering the economic and fiscal outlook were presented at this event.

From tomorrow, for the first time in over a decade, the point at which people can claim a state pension (the “state pension age”) is simple. If you have reached your 66th birthday, you can claim it. Otherwise you cannot. For women, the state pension age (SPA) has risen from 60 in March 2010, reaching 65 two years ago in October 2018. From then on the state pension age rose for both men and women, to reach age 66 tomorrow.

From today, the first 18-year-olds will be able to access Child Trust Funds (CTFs) set up over a decade ago by Tony Blair’s Labour government. When first announcing the policy, the government pointed to the fact that ‘people without assets are much more likely to have lower earnings and higher unemployment, and are less likely to start a business or enter higher education’. But how much difference might these accounts make to the finances of 18-year-olds?

In this special joint webinar, the Institute for Fiscal Studies (IFS) and the National Institute of Economic and Social Research (NIESR) examined the impact of the Covid-19 crisis on the public finances.

This morning, the ONS published its monthly public finance release for April, giving us an initial snapshot of the public finances under lockdown. It throws the enormous impact of the restrictions on the public finances into sharp relief.

The coronavirus outbreak and associated containment measures have caused huge economic fallout across the world. The sharp decline in economic activity that is now occurring will depress government revenues and push up public spending. In addition, governments have, appropriately, responded with packages of fiscal measures that will help support households, businesses and public services through these challenging times and limit the long-run damage done by the crisis. But these measures will also have the direct impact of adding considerably more to government borrowing.

On the eve of the economic crisis caused by the public health response to coronavirus, around 76,000 working-age families were subject to the benefit cap. The cap means that most of these families, and some of those who have since lost employment during the crisis won’t benefit at all from the temporary increases in benefits announced by the Chancellor. The cap provides a strong financial incentive for families to move into paid work or to move to cheaper housing; but this is less important, and in many cases undesirable, at the present time. Raising or removing the cap so that all working age benefit recipients can benefit from the temporary increase in support would make sense, at least while the current social distancing requirements are in place.

The Debt Management Office announced yesterday that in order to finance the Government’s response to the Covid-19 outbreak it intends to auction £45 billion of gilts this month. This would be a record. It is highly likely that the amount that needs to be raised over the new financial year will be the highest, as a share of national income, since 2009–10 and it could even exceed that peak. With an increasing amount of gilts set to be bought by the Bank of England the public finances will in future be even more exposed to changes in short-term interest rates.

Isabel Stockton, a research economist at the Institute for Fiscal Studies, said: “The response to the covid-19 pandemic has led to a sharp downturn in economic activity. It has also, rightly, prompted a substantial fiscal policy response, the cost of which will add directly to government borrowing.

This presentation was delivered as part of the IFS press briefing following the Spring Budget 2020.

It looks likely that responding to the coronavirus outbreak (covid-19) will be at the centre of Wednesday’s Budget. We look at some of the options the Chancellor has.